UK: Oil in Produced Water-new regulation

The Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005 (the "Regulations") are set to come into force on 21 August. The objective of the Regulations is to introduce a more robust, effective and efficient approach to the management of oil discharges by the offshore oil and gas industry and to achieve the 15% reduction target over 2000 levels mentioned in OSPAR Recommendation 2001/01 for the Management of Produced Water from Offshore Installations.

View the article in full below to learn how the regulations will apply to you, how permits will be issued and for an explanation of the oil in produced water trading scheme.

Full Article

The Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005 (the "Regulations") are set to come into force on 21 August. The objective of the Regulations is to introduce a more robust, effective and efficient approach to the management of oil discharges by the offshore oil and gas industry and to achieve the 15% reduction target mentioned in OSPAR Recommendation 2001/01 for the Management of Produced Water from Offshore Installations. The OSPAR Recommendation requires the UK to achieve a 15% reduction in the mass of oil discharged in produced water in 2006, measured against the mass of the equivalent discharge in 2000.

The Regulations apply to the UKCS offshore oil and gas industry only, and specifically to operators. They will apply even to those operators who contract out all of their operations. Contractors may apply for permits on behalf of the operator. Where applications are submitted by a contractor, the contractor will be obliged to provide documentary evidence that it is acting on behalf of the licensed operator, and the oil discharge permit will always be issued in the name of the licensed operator.

Where assets are tied-back to an installation, the operator of the tied-back asset will require an oil discharge permit only if there are direct discharges of oil from the tied-back facilities. Indirect discharges via the "host" installation should be included in the host installation permit.

The Regulations will do four things:

• update the existing definition of "oil";

• introduce a system of permits for oil discharges to replace the current exemptions issued under the Prevention of Oil Pollution Act 1971;

• introduce wider-ranging powers for inspectors to monitor and investigate all oil discharges including accidental oil spills;

• introduce a statutorily based trading scheme to reduce the amount of dispersed oil discharged in produced water.

"Oil" is defined as meaning "any liquid hydrocarbon or substitute liquid hydrocarbon, including dissolved or dispersed hydrocarbons or substitute hydrocarbons that are not normally found in the liquid phase at standard temperature and pressure, whether obtained from plants or animals, or mineral deposits or by synthesis"

This definition is designed to capture all hydrocarbons produced offshore and/or used in the course of exploration and production. The previous definition lent heavily on the use of the word "oil" and did not cover all hydrocarbon waste streams. "Oil" will include oil contained in produced water and oil contained in drill cuttings.

Under the Regulations the discharge of oil by offshore operators will require a permit to be issued by the Secretary of State for Trade and Industry. Fees for permits will be charged to effect full cost recovery for administration of the Regulations. A permit may be granted for the life of the installation (a "Life" permit) or for the duration of the activity to be covered by the permit (a "Term" permit), whichever is appropriate for the activity.

Oil discharge permits will not be required for hydrocarbons or substitute hydrocarbons designated as "chemicals" for the purposes of the Offshore Chemicals Regulations 2002. The use of low toxicity oil-based drilling fluids, synthetic-based drilling fluids and lubricants added to water based drilling fluids will be regulated under the Offshore Chemicals Regulations 2002.

It is envisaged that all permit applications will be made and permits issued electronically. It is recommended that application forms are submitted to the DTI at least 28 days before the permit is required. Applications must contain:

• details of the offshore installation;

• a description of the oil to which the application relates and the circumstances in which it is to be discharged; and

• the measures planned to monitor the use or discharge of the oil.

The Secretary of State may consult with third parties and may then either grant or refuse the application for a permit.

Permits may be subject to conditions:

• restricting the discharge quantities, concentration, duration, frequency and location;

• ensuring that appropriate measures are taken to minimise pollution, including, in particular, the appropriate use of technology to limit discharges, to prevent accidents affecting the environment and to minimise their consequences;

• to ensure that appropriate monitoring is carried out; and

• requiring measures to prevent or limit discharges in abnormal operating circumstances.

In practice the permits will contain schedules detailing the conditions relevant to that particular waste stream including sampling, analysis and reporting requirements.

At present produced water discharges are regulated under the Prevention of Oil Pollution Act 1971 with limits set for the proportion of oil in water and the daily flow which may be discharged. The OSPAR Recommendation provides for a lowering of the discharge concentration, over the five-year period. The UK baseline for total oil discharged is 5,768.40 tonnes and the UK target is 4,903.14 tonnes. It will in fact be necessary to achieve a reduction in excess of 15% to allow for new discharging installations that have been developed since 2000. The required reduction in order to meet the OSPAR Recommendation is approximately 17%.

After lengthy discussions between the DTI and the oil industry it has been decided that a trading scheme will be the most effective way to achieve the OSPAR target and details of this scheme have been drawn up in consultation with the industry. It is planned that the scheme will come into operation on 1 January 2006.

Allowances will be allocated to the discharging installation and will form the basis of an agreement between the DTI and the relevant permit holder. The DTI will establish and maintain a registry to record data relating to allocations, adjustments of allocation, trades, transfers, withdrawals and surrenders. Permit holders will be entitled to transfer and trade allowances allocated or otherwise acquired with each other. Provision has been made for permit holders to authorise sub-allocation of the allowances to third parties via the Registry, without DTI intervention.

Control of the allowances in the context of a joint venture will be a commercial consideration to be addressed by the owners of the installation and the assets served by the installation.

Costs may arise if an operator has not made the necessary reductions in oil in produced water discharges and is required to purchase credits, or pay a penalty for failing to surrender allowances equivalent to the discharges.

Financial penalties will be imposed on a permit holder who fails to surrender in respect of an offshore installation operated by him, a number of allowances equivalent to the number of kilogrammes of dispersed oil in produced water certified in the verified annual return as having been discharged from that installation. The fine has been set at £280/kilogramme of dispersed oil in produced water discharged. The total penalty will be assessed on the basis of the deficit between the holding of allowances in the Registry and the number of kilogrammes of dispersed oil in produced water certified in the verified annual return.

Existing exemptions issued under the Prevention of Oil Pollution Act 1971 will remain in force until they expire or are replaced by permits issued under the Regulations. However, for "Life" permits, as the DTI could not handle the administrative burden arising from the number of permits applied for, there is a one year "rolling start" period whereby the Secretary of State will specify dates by which individual operators require a permit. The rolling start for installations that discharge produced water commenced on 1 August. Specific start dates are available on the DTI website.

The "rolling start" will not apply to "Term" permits. Where "Term" activities are the subject of an existing exemption, the exemption will remain valid and it will not be necessary to apply for an additional "Term" oil discharge permit. However, it will not be possible to extend the period of validity of the exemption after the new Regulations come into force. If an existing exemption expires before the activity has been completed, it will also be necessary to obtain a "Term" oil discharge permit.

All oil discharge permits will include a requirement to maintain records of operations covered by the permit. These records will replace the requirement to maintain an oil record book and the particulars to be included in the record of operations will be detailed in the permit schedules.

A permit holder may apply to the Secretary of State for a variation of the terms and conditions of a permit. If the permit holder wishes to assign the permit both the permit holder and the proposed assignee must make an application to the Secretary of State to effect the assignment.

The Secretary of State will have wide powers with regard to renewal, variation, reconsideration and revocation of permits. In particular, the Secretary of State may revoke a permit if she considers that the permit holder has been guilty of a breach of the permit or where the application (or supporting documentation) contained a false or misleading particular.

In order to ensure that the conditions set out in the permits are complied with, the Secretary of State will appoint inspectors to monitor the discharge of oil.

Under the Regulations inspectors have wide powers, including powers to:

• board any offshore installation;

• make investigations;

• give directions that a part of the installation be left undisturbed for the purposes of investigation;

• take measurements, photographs and samples;

• cause an article or substance on an offshore installation to be dismantled or subjected to any process or test;

• require any relevant person to answer questions and sign a declaration of truth; and

• require the production of, inspect and take copies of, records.

Where an inspector considers that any activity in relation to the discharge of oil, involves a serious and imminent risk of pollution, whether the risk relates to the contravention of a permit or not, he may serve a formal Notice on the permit holders specifying the risk identified, the steps that must be taken to remove it and the time within such steps must be taken. Any permit may cease to be effective until the Notice has been lifted. If the required action is not taken by the date stipulated the Secretary of State has the power to take the action and to recover the costs from the permit holder. Where the circumstances warrant the inspector may recommend prosecution.

It will be a criminal offence if a person:

• uses or discharges oil without a permit or in breach of permit conditions;

• fails to comply with a Notice;

• fails to comply with the directions of or wilfully obstructs an inspector or without reasonable excuse fails to comply with an obligation imposed by an inspector;

• fails to supply any information required under the Regulations; or

• knowingly or recklessly makes a statement which he knows to be false or misleading.

A person convicted of an offence will on summary conviction be liable to a fine of up to £5,000 and on conviction on indictment to an unlimited fine. Where it can be shown that the offence is attributable to an officer of the operator in question, he or she, as well as the company, will be guilty of an offence.

The protection of the marine environment is a matter of ever increasing concern. The offshore oil industry is making considerable efforts to minimise oil in produced water discharges and improvements in this area have already been achieved. The Regulations are designed to encourage operators to continue to reduce the quantities of hydrocarbons discharged during offshore operations. However, the introduction of these Regulations will undoubtedly increase costs to operators offshore. In a mature basin such as the UKCS many of the fields produce large quantities of water. It may be that some "wet" wells are abandoned earlier than would have been the case if the operator finds that it is not possible to comply with the new Regulations and it is considered that the resulting financial penalties would make continued operations uneconomic.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 12/08/2005.